ACCT11

Direct Method

Adjusts the items on the income statement to directly show the cash inflows and outflows from operations, such as cash received from customers and cash paid for inventory, salaries, rent, interest, and taxes.

The indirect and direct methods:

Are two allowable methods to present operating activities in the statement of cash flows.

We can separate cash return on assets into:

Cash flow to sales and asset turnover.

Which of the following items do we report in the statement of cash flows using the direct method?

Cash paid to suppliers.

We can identify operating activities from income statement information and changes in:

Current asset and current liability accounts

Investing Activities

Includes cash transactions involving the purchase and sale of long term assets and current investments.

Asset Turnover

Net Sales DIVIDED by Average Total Assets

Cash Return on Assets

Net cash flows from operating activities DIVIDED by average total assets.

Cash Flow to Sales

Net cash flows from operating activities DIVIDED by sales revenue

Which of the following is an example of a cash outflow from a financing activity?

Payment of cash dividends

Which of the following is an example of a cash inflow from an investing activity?

Receipt of cash from the sale of equipment

Noncash Activities

Significant investing and financing activities that do not affect cash.

Purchasing land by issuing common stock is an example of:

a noncash activity

Indirect Method

begins with net income and then lists adjustments to net income in order to arrive at operating cash flows.

Statement of Cash Flows

financial statement thsat measures activities involving cash receipts and cash payments over a period of time.

The issuance of bonds payable is classified in the statement of cash flows as a(n):

financing

The issuance of common stock is classified in the statement of cash flows as a(n):

financing

Operating Activities

includes cash receipts and cash payments for transactions relating to revenue and expense activities.

Financing Activities

includes cash transactions resulting from the external financing of a business.

The purchase of a long-term asset is classified in the statement of cash flows as a(n):

investing activity